Reduction of capital, Business Law and Ethics

Reduction of Capital:

4.1 The general rule is that it is illegal for a company to reduce its capital. This is so because such a reduction would be tantamount to reducing the security available to the company's creditors: Trevor v Whitworth (48). However, S.68 (1) authorizes a company to reduce its capital if:

a) The company's articles authorizes it to do so. If the articles do not confer the authority they can be amended by the inclusion therein of the requisite authority.

b) The company passes a special resolution to that effect. The resolution is defined by S.68 (2) as "a resolution for reducing share capital".

c) The court confirms the proposed reduction. The court's confirmation is required in order to protect the interests of the company's creditors, minority members and the general public.